Fuel storage tanks near Shenyang, northeast China. China raised the price for petrol, diesel and jet fuel as much as 8 percent overnight in the fifth price rise of 2009 in an attempt to track global oil price rises and incentivise refiners to keep up with rising demand.

Beijing: China’s latest fuel price rise may be its last easy fuel pricing decision for a while. Under a pricing regime that links retail fuel prices to the the global cost of crude, the government upped pump prices for gasoline and diesel by about 7 percent from Tuesday, taking them to the highest ever.

But the system’s clarity, the main reason for its introduction at the start of the year, only operates when crude is below $80 a barrel, a level the global benchmark is bumping up against.

Above this, and fuel price decisions increasingly become mired in politics, as the government tries to steer between “too low” -- when refineries decide producing petrol and diesel is not worth it, and “too high” -- when economic growth starts to gag on the price of a fill-up at the pump.

The problem is that the pricing guidelines, set out a year ago by the National Development and Reform Commission (NDRC), don’t spell out how refinery margins will change above $80 a barrel, only that “normal” margins won’t be guaranteed.

How much pressure should the government put on prices? How much pain should refiners be expected to take? How much help is needed for the economy, which is expected to grow by more than 8 percent this year and is churning out record numbers of cars?

The stakes are high for top Asian oil refiner Sinopec and Asia’s top oil and gas producer PetroChina, which still made refining losses last year even with combined a government subsidy of 66bn yuan ($9.67bn).

At the State Information Centre, a key think-tank attached to the NDRC, senior researcher Niu Li is in no doubt as to what should be done. “Weighing up current inflation and economic performance against a possible fuel price rise, I think policy makers should choose the latter without the slightest doubt,” said Niu. “If raising prices can help solve various problems, why not do it? This is good for energy saving and is in line with our overall energy strategy. But it will require more sophisticated calculations to set the size of the price rise each time.”

The uncertainty seems like a return to the old pricing regime which, in its last throes in December, produced a 15 percent gasoline price cut and an 18 percent diesel cut, far less than merited by a 70 percent collapse in crude prices. “This was because the two oil majors were still producing fuel from the expensive crude stocks they built up before the Olympics,” said Yan Kefeng, a senior analyst at Cambridge Energy Research Associates.

The two Chinese refining majors, whose reluctance to produce fuel at a loss led to intermittent shortages last year, have naturally been advocates of the new system as prices have risen. Sinopec has been especially vocal, most recently complaining of a refining loss in October because of rising crude prices. After the latest rise, the belt-tightening begins.

Under the year-old oil pricing regime, refiners can count on normal margins while crude is below $80. Above $80, rising crude won’t necessarily translate into higher prices at the pump. A senior industry analyst said that the normal margin is set at 5 percent of the corresponding crude cost. As crude moves from $80 to $105, the margin will be lowered proportionately from 5 percent to 0.